In the last century, Ukraine was the bread basket of the Soviet Union. In the 21st century, it will become the bread basket for China.
The Xinjiang Production and Construction Corps, known in Chinese as the Bingtuan, has signed an agreement with KSG Agro, a private firm, to develop jointly three million hectares of high-quality land in the eastern Dnipropetrovsk region in Ukraine, to grow crops and raise pigs.
This is a Pharaonic project in many senses. The area is equivalent to the land area of Belgium, Armenia or Massachusetts and represents nine per cent of Ukraine’s arable land. It is China’s largest overseas land deal, dwarfing those it has signed in Africa, Latin America and Australia.
It also has profound strategic significance for Ukraine, which is due to sign an Association Agreement (AA) with the European Union this November, a milestone to a closer economic and political union with the EU.
Russia bitterly opposes the AA and instead wants Ukraine to join a customs union with Belarus, Kazakhstan and Russia. It has warned that signing the AA could lead to economic default, a decline in living standards and political and social unrest. It sees the agreement as the loss of the richest territory under Russian and Soviet control from 1795 to 1991.
So Ukraine must diversify its export markets and prepare for possible sanctions by Russia. China is one of the few countries in the world with the demand, capital and technology to buy large amounts of farm goods and improve the productivity of Ukrainian land. In 2011, the country was the world’s third largest grain exporter.
On a visit to Beijing in late September, Agriculture Minister Nikolai Prisyazhnyuk said China could become a strategic market for Ukranian cereals, meat, sunflower oil and sugar. After Kiev signs the AA, Russia has threatened to raise customs duties on Ukrainian food; the agreement will also open the domestic market to subsidized food imports from the EU, forcing local farmers to become more efficient.
The agreement includes a loan of US$3 billion from the China Import Export Bank to Ukraine for agricultural development. In exchange for the food it exports, the Ukraine will receive seeds, equipment and fertilizer factories, as well as US$100 million worth of fertilizer a year. The media in Kiev put the value of the agreement at more than US$2.6 billion.
Sergie Kasyanov, owner of KSG, said the agreement will begin with setting up drip irrigation on one million hectares of farmland that his company leases from the state. Later on, Chinese irrigation technologies will be used on a further two million hectares.
The 2012 annual report of KSG says that Ukraine has more arable land than any other European country, with 32.4 million hectares, or 11.7 percent of the continent’s total. The country accounts for one third of the world’s black soil and has an average humus level of 40-60 cm, compared to a European average of 5-30 cm. The eastern Dnipropetrovsk region is in the southeast of Ukraine, close to Black Sea port, to export its goods.
“Decades of poor management and under-investment have resulted in crop yields far below the country’s potential,” the KSG report said. It said that the country could produce 100 million tons of grain a year, more than 2.5 times its current level.
This is exactly what China is looking for. Its imports are rising as the demand for grain-based products is soaring and its own arable land is shrinking. The official China National Grain and Oils Information Center has forecast wheat imports of 7.5 million tons in 2013/2014, the highest for 10 years.
The fact that the Chinese partner in this project is the Bingtuan is rich in historical irony. It was set up by Mao Tse-tung in the 1950s, on the model of the soldier-settlers of Israel who built and defended the kibbutzim. Mao gave them the mission of cultivating the desert, preventing the creation of a Uighur state and defending the border against Soviet attack.
After the Sino-Soviet split in 1960, the Bingtuan were given responsibility for large areas of the border where they built giant state farms that rely on intensive irrigation and deterred a Soviet attack.
Since then, it has grown to 2.6 million members controlling 74,000 square kilometers, including five cities. It produces 40 percent of Xinjiang’s cotton, one third of its oilseeds, nearly half of its sugar beet and has become one of the world’s biggest producers of tomato paste, with annual sales of four billion yuan, mostly for export. It operates 1,500 companies of which 11 are listed on different stock markets.
Thanks to this, it has the capital, manpower and expertise to operate such a large project as the one in Ukraine. After playing a critical role in the Han Chinese colonization of Xinjiang, it will now have a mission of equal importance — preserving the nation’s food security in the 21st century.
Mark O’Neill, a Hong Kong-based journalist and author, writes on Greater China. He has worked as a correspondent for the South China Morning Post in Beijing and Shanghai.